Recession is likely: Prof Arun Kumar on demonetisation -Governance Now

Recession is likely: Prof Arun Kumar on demonetisation

“The slowdown in demand will last for 1-2 years. Money supply will not be restored for another 7-8 months.”

Jasleen Kaur | November 22, 2016 | New Delhi

#recession #Demonetisation #scrapped currency #black money

Demonetisation is not the way to tackle black economy and it will in fact affect the white economy, believes Arun Kumar, a former professor of economics at the Jawaharlal Nehru University (JNU) who has authored The Black Economy in India (Penguin, 1999).

Kumar says that the common people are adversely affected. And as demand falls, production falls and this would ultimately result in fall of employment. “This will affect people at large. And the slowdown in demand will last for 1-2 years. Money supply will not be restored for another 7-8 months. Because of this difficulty in circulation, the demand will slow down for the coming 8-10 months. And therefore recession is very likely.”

He also adds that the move is affecting agriculture, industry and services. Black money would be just 1-2 percent of the total money and and most of this money would also be recycled. “So if you are able to demobilise this income, this would hardly create any difference,” he adds.

Kumar says, “Black income is generated through a variety of means – in spurious drugs, in under or over invoicing in trade and business. There are as many ways of generating black income as there are number of sectors in the economy. So even if you are able to demobilise some amount of black money this year, it would be again generated next year.”

Instead of going for demonetisation, Kumar adds, that the government could have tracked the hawala houses, ended banking secrecy and formed the Lokpal to bring in accountability. He also says demonetisation of currency will not tackle the black economy problem and will just hurt the white economy and small traders and workers.

“If this could have solved the black economy problem, then it does not matter even if we have to suffer some pain. If it is not solving the problem and causing a lot of problem to people who are innocent or workers who are not generating black income, then why do it?”

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